Employee Tax Credit FAQs
Employee Retention Credit under the CARES Act
How much can my business save with the Employee Retention Credit?
The maximum tax credit you can receive with Employee Retention Credit is $7,000 per employee per quarter, which adds up to $28,000 per year. Your business needs at least $10,000 in qualified wages and expenses in order to qualify for the maximum.Â
Previously, the maximum Employee Retention Credit was only $5,000 per employee per year, so this amount has increased more than 500% for the year 2021.
Can I apply for both the ERC and the Paycheck Protection Program (PPP)?
Yes, but certain steps must be taken to determine how you should apply for each so that all your earnings remain eligible for consideration.
For example, you may not “double-count” wages when applying for the PPP and the ERC, so it is important to know which program to apply your wages towards to maximize your potential tax credits. Working with a tax professional can help you avoid costly mistakes.
How much can my business save with the Employee Retention Credit?
The maximum tax credit you can receive with Employee Retention Credit is $7,000 per employee per quarter, which adds up to $28,000 per year. Your business needs at least $10,000 in qualified wages and expenses in order to qualify for the maximum.Â
Previously, the maximum Employee Retention Credit was only $5,000 per employee per year, so this amount has increased more than 500% for the year 2021.
How do I qualify for the Employee Retention Credit?
To qualify for the 2021 Employee Retention Credit, your business must have experienced a 20% or more decline in gross receipts when comparing the current earnings quarter to same earnings quarter in 2019.
If the business did not exist in the same quarter in 2019, you may substitute 2020 instead.
If the business did not exist in the same quarter in 2020, you may use the “immediate†preceding quarter.
To qualify for the 2020 Employee Retention Credit, slightly different rules apply: your business must have experienced a 50% or more decline in gross receipts in any calendar quarter from 2019 versus 2020, or a 20% or more decline in gross receipts in Q4 2019 versus Q4 2020.Â
Aside from a decrease in earnings, your business also qualifies for the ERC if operations were fully or partially suspended due to orders from the appropriate government, in which case your wages lost during that period would be eligible as long as they were not used to apply for the PPP.
How many employees must my business have to qualify for the Employee Retention Credit?
You do not need a certain number of employees to qualify; however, businesses with over 500 employees can only apply with wages for employees who were not working while still being paid. Businesses under 500 employees are able to use all of their employees’ wages to apply, including employees who were still working during the time period you are applying under.
How is the Employee Retention Credit calculated?
The 2021 Employee Retention Credit is calculated according on your total wages, which is based on wages paid from March 12th, 2020 to July 1st, 2021, as well as healthcare costs paid for employees during that period. Wages that were used to apply for PPP loan forgiveness are not eligible to be “double-counted.â€
What would make me ineligible for the Employee Retention Credit?
If your business does not meet the decline in gross income outlined above, or if the business has taken a Work Opportunity Tax Credit, it is ineligible for the ERC.
What is the refund process for the Employee Retention Credit?
The employee retention credit is a payroll tax credit that applies towards Social Security taxes and is fully refundable. For 2020, if taxes have already been filed, file Form 941-X to amend the payroll tax paid in previous quarter and add the credit. If you are a small employer (under 500 employees), you may use Form 7200 to request an advance of the credit.